Question

Los per unit of each product. ✓ Cell phones, $1.68 per unit procis EX 18-13 Activity-based costing and product cost distortion Obj. 2,4 Digital Storage Concept Inc is considerance to activity-based product costing. The com Pamy produces two products cell phones and tablet PCs in a single production department The production department is estimated to require 3,750 labor is budgeted to be $375,000. tment is estimated to require 3,750 direct labor hours. The total indirect me records from indirect labor employees revealed that they spent 40% of their time setting u setting up production runs and 60 of their time supporting actual production The following information about cell phones and tablet PCs was determined from the corporate records: con EXCEL TEMPLATE Number of Direct Labor Setups Hours Units Cell phones 600 1,875 93,750 Tablet PCs 1,400 1,875 93,750 Total 2,000 3.750 187,500 Determine the indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as the alloca- tion base. A B. C. Determine the budgeted activity costs and activity rates for the indirect labor under activity. based costing. Assume two activities one for setup and the other for production support. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing. Why are the per-unit allocated costs in (A) different from the per-unit activity cost assigned to the products in (C)? D.

Answer 1

A	Indirect Cost per Unit Allocated to Cell Phone
	Total Cost	375000
	PERCENTAGE OF direct labour hour used in production if cell phone	50%	(1875 Hrs/3750 Hrs i.e. Total) * 100
	Indirect labour cost allocated to cell phone	187500	(375000*50%)
	No. of Unit	93750	Given
	Cost per unit	2	(187500/93750)
	Indirect Cost per Unit Allocated to Tablet
	Total Cost	375000
	PERCENTAGE OF direct labour hour used in production if Tablet	50%	(1875 Hrs/3750 Hrs i.e. Total) * 100
	Indirect labour cost allocated to Tablet	187500	(375000*50%)
	No. of Unit	93750	Given
	Cost per unit	2	(187500/93750)
	Computation of activity rates and overhead assigned to product - Activity Based Costing
B	Activity	Cost	Cost Driver	Qty of cost driver	Allocation rate	Cellphone		Tablet PC
						Allocation Qty	Allocated Overhead	Allocation Qty	Allocated Overhead
	Setup	150000	Nos of Setups	2000	75	600	45000	1400	105000
	Production Support	225000	Direct labor hours	3750	60	1875	112500	1875	112500
	Total	375000					157500		217500
C	Activity	Cellphone			Tablet PC
		Allocated Cost	Nos of Unit	Activity cost per unit	Allocated Cost	Nos of Unit	Activity cost per unit
	Setup	45000	93750	0.48	105000	93750	1.12
	Production Support	112500	93750	1.2	112500	93750	1.2
	Total	157500	93750	1.68	217500	93750	2.32
D	ALLOCATED cost per unt under both scenarios are different because in A, cost allocated using single cost driver that is labour hour. But in B, cost allocated on the basis of two cost driver i.e. no. of set ups and direct labour hour.